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My 2 favourite FTSE 100 stocks right now

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The FTSE 100 has recovered fairly strongly since its lows last March and has remained fairly steady over the past few months. This recovery has been brought about by optimism surrounding the vaccine rollout, alongside declining coronavirus cases within the UK. But with the economy still in a difficult state, it’s important to be discerning when choosing stocks. These two FTSE 100 stocks are my personal favourites right now, due to their robust nature and strong dividends.

A defence giant

BAE Systems (LSE: BA) is the first stock that I particularly like. In its recent trading update for 2020, underlying EBITDA was able to rise 0.7% to £2.13bn and underlying earnings per share also rose 2.2%. This demonstrates an extremely strong performance in challenging economic conditions.

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Such resilient results also warranted a dividend increase of 2.2% from last year. This increase suggests that management is confident about the future. It also represents a dividend yield of around 4.7%. In comparison to other FTSE 100 stocks, this is a very impressive dividend. I’m also not worried about its sustainability, especially because free cash flow has increased over 60% this year to nearly £1.4bn.

One of my main worries about BAE Systems though is its large amount of debt. Indeed, net debt actually increased drastically this year to £2.7bn. This was mainly due to various acquisitions this year. Of course, if BAE is able to continue growing profits thanks to these acquisitions, then the large debt pile is not a problem. However, it’s still a risk that should be pointed out, especially if sales start to slow down in the future.

This FTSE 100 stock might be making a big acquisition

Another firm that recently announced its full-year results is Mondi (LSE: MNDI). In comparison to BAE, profits in the packaging company have been hit harder by the pandemic. Indeed, compared to 2019, operating profits were 29% lower at £868m. The uncertain macroeconomic outlook may therefore strain the Mondi share price for the time-being and there are risks of further disruptions to the business. But this is not a poor performance in the current climate. Profits were also strong enough to raise the dividend by 5%. 

Mondi is also in good financial shape and net debt has managed to decrease drastically to £1.8bn this year. This means that net debt-to-underlying EBITDA currently stands at 1.3x, which demonstrates a stable financial position. Such a healthy balance sheet is one reason for Mondi being one of my favourite FTSE 100 stocks right now.

One of the big pieces surrounding Mondi right now is its rumoured bid for packaging rival DS Smith, which is valued at nearly £6bn. Reports suggest any plans are at a very early stage, and there’s therefore no certainty that they will progress any further. Yet it would have major implications for the company. In many ways, this would help Mondi capitalise further on the e-commerce market. However, blockbuster acquisitions such as this can have negative implications, especially if Mondi were forced to raise money for the acquisition through diluting the share price. As a current Mondi shareholder, I’m therefore considering these risks.

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Stuart Blair owns shares in Mondi and BAE Systems. The Motley Fool UK has recommended DS Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.